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Understand Bankruptcy.

This page is devoted to what happens when our debts overwhelm us and we become bankrupt.
What does it mean for us and our family? What can be done to lessen its impact? What can we do to avoid it?

Bankruptcy

If you have a debt problem, you might have a number of options for sorting it out. One of these might be bankruptcy. Bankruptcy is a court order that you can apply for if you are in debt. Once you have been made bankrupt, you don't have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.

Remember, bankruptcy might not be your only option, and it might not be the best one for you. Also, someone you owe money to could make you bankrupt even if you don't want this. If you are faced with bankruptcy, you'll need expert advice (see Further help at the end of this page).

Advantages of going bankrupt

Some advantages of going bankrupt are:
Pressure is taken off you because you don't have to deal with your creditors. You are allowed to keep certain things, like household goods and a reasonable amount to live on When the bankruptcy order is over, you can make a fresh start. In many cases, this can be after only one year The money you owe can usually be written off.

Disadvantages of going bankrupt

Some of the disadvantages of going bankrupt are:
It costs £460 to go bankrupt and whilst you are bankrupt, you can't apply for more credit If you own your own home, it might have to be sold (but you may be able to apply to your local authority for re-housing) Some of your possessions might have to be sold, for example, you will usually lose your car and any luxury items you own. Some professions don't let people who have been made bankrupt carry on working. If you own a business, it is more than likely that the Official Receiver will close your down your business, dismiss your employees and sell off the assets. Going bankrupt can affect your immigration status.

You cannot keep your bankruptcy private. A list of bankrupt people is published on the internet and your case could also be published in your local newspaper Even when you are no longer bankrupt, you could have another order, called a bankruptcy restriction order made against you. These orders can be made, for example, where you did not co-operate with the Official Receiver, or you took on debts knowing that you had no hope of paying them back. They can last for 15 years, and will make your financial affairs very restricted. Even when you are no longer bankrupt, there are some debts, such as court fines and student loans, that will never be written off.

How to go bankrupt

If you decide to go bankrupt, you will need to apply to court. To do this, take the following steps:

Find out which court to go to. This will usually be the county court in the area where you have lived for the last six months (although it can sometimes be where you work). In London, it is the High Court. Any local county court or the High Court will tell you which is the right court for you. Make sure you have enough money for the bankruptcy fee (£150) and the deposit (£310). You won't get either of these back. Get hold of a bankruptcy petition (form 6.27) and statement of affairs (form 6.28). Copies are available from your local court, or from the Insolvency Service website here: www.insolvency.gov.uk.

Fill in the forms. You must list all your creditors, even if the debt is disputed. You must also give details of all your bank account and building society accounts. You will be asked to list other assets and items with a resale value, for example, antiques. Any valuables you list in this section of the form risk being sold. Take the forms with two copies, the fee and the deposit to court, and swear an affidavit. This means that you swear to the court you have told the truth in the forms. Remember, if you make false statements, or don't tell the Official Receiver about all your property, this is a criminal offence and you could be fined or sent to prison. It is also a criminal offence to conceal property or documentary evidence, or to get rid of property before you go bankrupt.

Once you have sworn your forms, the court may either fix a time for the hearing, or hear your case traight away. If your case is in the county court, you will have to attend the hearing. What happens when a bankruptcy order is made At the bankruptcy hearing, the court will decide either to reject your application, or to make a bankruptcy order. The court will reject your application if, for example, they think there is a better solution to your debt problem. Once the bankruptcy order is made, all your bank and building society accounts will usually be frozen immediately. Your money will come under the control of the Official Receiver. You should try to make sure you have enough cash for day-to-day expenses before your accounts are frozen. The Official Receiver will arrange an interview with you. After your interview, the Official Receiver will tell your creditors about the bankruptcy, and send them a report with a summary of your financial situation. Your assets will be sold to pay off some or all of your debts. The costs of the bankruptcy are paid first from the money that is available. The costs include fees that the Official Receiver charges for dealing with your case.

The End of your bankruptcy

Your bankruptcy will normally end after one year. It could be less than a year if you have co-operated fully with the Official Receiver. The Official Receiver will tell you when the bankruptcy is over. Any debts that haven't been paid will be written off.

The content of this page is applicable to England and Wales only. It was updated on 1st July 2005 and was derived from advice provided by the Citizens Advice Bureaux. The CAB should be contacted at the earliest oportunity regarding any serious debt issues. They are probably the most valuable resource in Britain regarding personal debt. Don't be afraid to use them.

Further help:

The Insolvency Service, Enquiry line: 020 7291 6895.
Website: www.insolvency.gov.uk.

Citizens Advice Bureaux give free, confidential, impartial and independent advice to help you solve problems. To find your nearest CAB, including those that give advice by e-mail, click on nearest CAB. You can also look under C in the phone book. And don't forget to click under our Links page.

Household Debt Behind Record Bankruptcies

(Monday 8th November 2004 news story)

The number of individuals going bankrupt has hit a record high, with figures revealing that in the third quarter of 2004, 11,967 people were declared insolvent, which is up 31% on the same quarter a year ago, according to figures from the Department of Trade and industry.

Experts placed the blame on soaring credit card debt, with the typical bankrupt owing £50,000 on a variety of cards. The rise in bankruptcies - the tenth quarterly increase in a row - will renew concern over Britain's £1 trillion consumer debt, coming days after figures showed that home repossessions have risen to their highest level since early 2000.

Legal changes to bankruptcy, criticised for creating a "soft option" in which individuals can escape their debts in as little as one year, may also be behind the rise.

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